STEVE INSKEEP, HOST:
President Trump is on the verge of making one of his most important personnel decisions - whether to reappoint Janet Yellen. The chair of the Federal Reserve has a four-year term that ends next year. There are other candidates for the job, and an announcement is possible soon. So we've called on David Wessel, who wrote a book about the Fed, now directs the Hutchins Center at the Brookings Institution and is a regular guest here.
David, good morning.
DAVID WESSEL: Good morning.
INSKEEP: So is Janet Yellen Donald Trump's kind of Fed chair?
WESSEL: Well, we'll find out. On one hand, the president seems to favor someone who won't raise interest rates rapidly, who won't be spooked by a low unemployment rate. And Janet Yellen seems to fit that bill. On the other hand, he and his advisers have made clear that they want to roll back some of the financial regulations imposed after the crisis, and she seems very unsympathetic to that.
INSKEEP: Well, let's talk about that because the Fed chair, in modern days, does talk in public from time to time, give public testimony, press conferences. Hasn't she commented on some issues of great interest to the president?
WESSEL: Well, yes. She - in a speech at the Fed's Jackson Hole conference in August, she made clear that she was going to resist rolling back the regulations that followed the crisis - the Dodd-Frank Act and so forth. But I would think that the president would care a lot more about what she does to interest rates. And on that score, he hasn't had any complaints.
INSKEEP: Because interest rates have remained extraordinarily low. We should mention, this is a big deal for every president, even though every president, I'm sure, would deny that he considers it. What is going to be the interest rate over the next two, or three or four years would make a big difference to the president's re-election. That's going to be true with this president, as it is with any.
WESSEL: That's right. And of course, interest rates decisions are made by a committee, not by the Fed chair herself or himself. But the Fed has evolved. It's more democratic than it used to be. Alan Greenspan and Paul Volcker ruled the roost like an autocrat. Ben Bernanke and Janet Yellen have not. So one consideration for the president is picking someone who can hold the committee together and not cause a lot of instability or divisiveness.
INSKEEP: So if it's not Yellen, who else is there?
WESSEL: There are two candidates, known as the disrupters, who've been critical of the Bernanke-Yellen Fed - Kevin Warsh, a former Fed governor, popular with some Republicans, sympathetic to President Trump's efforts to cut taxes to spur growth, and John Taylor, the only Ph.D. economist besides Janet Yellen on the president's list. He's at Stanford. He came up with a rule for setting interest rates. Unfortunately, for him, it would suggest that interest rates should be a lot higher than they are now. And then there's the continuity alternative to Janet Yellen, Jay Powell, a Republican member of the Federal Reserve Board now, who would probably follow her policy of gradual, gentle interest rate increases but is a little bit more sympathetic to the financial regulation positions of the administration.
INSKEEP: Could the choice of the next Fed chair significantly affect the way that the United States tries to manage the next recession?
WESSEL: Absolutely. One of the challenges that the next Fed chair faces is how to handle a recession when interest rates are still low, and they won't be able to cut them by 4 or 5 percentage points the way the Fed has in the past. So this is one of the challenges. And it's a thing that argues for having kind of a seasoned economist to manage this. If the Fed chair gets it wrong, not only will the economy of the U.S. suffer, but the world and the financial markets will suffer as well.
INSKEEP: David Wessel, who writes for The Wall Street Journal and is at the Hutchins Center of the Brookings Institution.
WESSEL: You're welcome.
(SOUNDBITE OF FREDDIE GIBBS & MADLIB SONG, "BROKEN")
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